Watson’s Weekly 05-11-2022

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE DAY IN BRACKETS REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

The Fed and the BoE hiked up, Lula made a dramatic return and Musk wielded the axe…

MAERSK is experiencing a slowdown in global trade (Thursday), breaking a 16-quarter earnings growth winning streak. If it’s happening to Maersk, it’s probably happening everywhere else!

IN THE US – the Fed raised interest rates by 0.75% (Thursday) for the fourth consecutive time in order to battle against inflation but there were hints that further hikes would be smaller.

IN BRAZIL – the 77-year-old Luiz Inácio Lula da Silva beat Bolsonaro to become president (Monday), signifying a significant political swing to the left. It is seen as being likely that he will increase spending on social projects and infrastructure, but the detail on how he is going to finance this has yet to be revealed.

IN EUROPE – Eurozone inflation hit a new high of 10.7% in the year to October (Tuesday), according to the latest data from Eurostat. The ‘zone is teetering on the edge of recession…

IN THE UK – the Bank of England raised interest rates by 0.75%, its biggest rise for 30 years (Friday) and governor Bailey spent a lot of time brushing off market predictions of peak rates reaching 5.25%. If he’s wrong, he’s going to look even more like a clueless idiot – but if he’s right about peak interest rates he’ll look like a god 😁. In the meantime, the latest S&P Global UK services PMI showed that our services sector contracted for the first time since January 2021 (Friday). This is a big deal given that our services sector contributes 70-80% of our GDP. Sunak is gearing up to impose tax rises across the board (Tuesday) and he also walked back Truss promises on the Northern Powerhouse Rail project (Thursday).

IN COMMODITIES NEWS…

There was a big kerfuffle about grain this week, but ultimately it all worked out. Russia pulled out of a grain deal (Monday) that kept the supply of grain flowing through Southern Ukraine, wheat prices shot up as a result (Tuesday) but then Russia decided to rejoin the agreement after all (Thursday).

In OIL NEWS, BP and Saudi Aramco saw profits boom (Wednesday) thanks to ongoing high energy prices but BP’s success is making it an easier target for windfall taxes (Wednesday).

In GAS NEWS, prices have been falling sharply (Thursday) as an influx of US LNG has led to a surplus of supply while unseasonably warm weather has dampened expected levels of demand. Germany’s Uniper reported one the biggest ever losses in corporate history (Friday) as it has suffered from having to buy gas on the spot market (expensive) whilst absorbing the costs itself. The state is saving Uniper but clearly it has a lot of problems!

In GOLD NEWS, central banks have been on a buying spree over Q3 (Wednesday), according to the latest stats from the World Gold Council. They have been doing so to protect currencies – and Turkey has been the biggest buyer this year.

• IN BATTERIES – Britishvolt was on the brink after the UK government refused a plea for more cash (Tuesday). Other companies are circling (Wednesday) but it then got five weeks of funding (Thursday) from an existing investor and then promptly renewed its plea to the government for funding (Friday), this time with the incentive that its funding would be matched by a private equity investor.
• IN CARS – while supply chain problems continued to hit the financials of Aston Martin (Thursday) and Toyota (Wednesday), Ferrari saw rising demand and strong pricing power (Thursday) and Bentley reported record profits (Wednesday) along with solid performances from BMW (Friday) and Stellantis (Friday). It was also interesting to see that Saudi Arabia launched its first electric car company (Friday), called Ceer, which uses BMW technology, Foxconn’s manufacturing expertise and is financed by the kingdom’s sovereign wealth fund, the PIF. Elsewhere, it was very interesting to see that new car prices in the US are starting to cool (Tuesday) and you wonder whether that will go further as inflation continues to kick in.

• IN EUROPE – European consumers cut discretionary spending (Monday), according to the latest sales data which shows that spending on cars, going to the cinema and hotels has fallen in addition to expenditure on big ticket items. It was interesting to hear that British online ticket group Trainline has benefited from the liberalisation of railways in Europe (Friday) and saw ticket sales rise by 81% in France, Italy and Spain. IN REAL ESTATE, Spanish homeowners are facing particularly hard times in a rising interest rate environment (Friday) because around 75% of mortgage holders in Spain are on variable rates, although the rate is actually reset once a year (so it could be worse!).
• IN THE UK – households saved more and sought to borrow less (Tuesday) while spreading the cost of Christmas (Friday) as prices went higher (Wednesday). IN REAL ESTATE, UK house prices fell for the first time in 15 months (Wednesday), demand for property in the south-east fell (Monday) and Barclays stopped offering 95% mortgages (Tuesday).
• IN RETAIL NEWS – Made.com looks like it will have to bring in the administrators (Wednesday) just over one year after a much-trumpeted IPO! In grocery retail, Morrisons announced plans to shut 132 McColl’s outlets (Wednesday) after getting the go-ahead from the CMA to buy the retailer out of administration and Ocado shares boomed on news of a new South Korean retail partnership (Wednesday) with Lotte Shopping. This is Ocado’s biggest deal since 2019!

• Google is facing a major court case before the Supreme Court (Monday) that will challenge the archaic Section 230 which protects social media platforms for liability over the content provided by third parties, something that is waaaaaay overdue given that it came into force in 1996 when the internet was rather different!
• Meta shareholders are getting increasingly frustrated with Mark Zuckerberg’s obsession with the metaverse (Monday), but there’s not much they can do about it other than sell the shares as he has the majority of the voting rights!
• Twitter is undergoing huge changes since Elon Musk took over! Musk has brought in a number of outside advisers to brainstorm (Tuesday), is drafting more layoffs (Monday) and killing working from home (Friday).

On the tech hardware side of things…

• Foxconn employees were fleeing the world’s biggest iPhone factory (Monday) because of miserable lockdown conditions as China sticks to its zero-Covid policy. This crisis highlights just how reliant Apple is on China (Tuesday).
• Lenovo confirmed the trend for the slowdown in PC demand (Friday) as it reported contracting revenues.
• Qualcomm reported that a slowdown in smartphone demand was hitting its revenues (Thursday), illustrating a trend where chip makers who have more of a focus on consumer electronics are suffering more than those whose focus is more on the automotive sector.

• Netflix is still negotiating with Hollywood studios (Thursday) about what percentage they should earn from the ad revenues from its new ad-supported subscription option. This means that the new service won’t have quite as full a content roster as the premium service.
• Uber beat pre-pandemic numbers (Wednesday) with Q3 results coming in above analyst expectations.
• Johnson & Johnson bought cardiovascular tech group Abiomed for $16.6bn (Wednesday) to broaden its focus on drugs and medical devices.
• CVS and Walgreens have agreed to pay over $10bn to settle opioid lawsuits (Thursday). This could draw a line on a huge cloud of uncertainty that has hung over all parties for years.

• Watson’s Yearly updates 2021/22: there have been updates in the G20 statistics (some inflation and unemployment rate changes) as well as country updates. Please click HERE to see Watson’s Yearly and the changes. Changes have been highlighted in this purple colour 👍 You will be able to see how themes and countries develop throughout the year by reading this document! 

This week, there was only ever going to be one winner in the “alternative story” category – and that was the video of Top Gun with a cat. Absolute genius!